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Quarterly video: Facebook, inflation and quality

Quarterly video: Facebook, inflation and quality

Tom Walker, Portfolio Manager, Global Portfolio Trust

What caught your eye this quarter?

One of the biggest stories over the quarter was the Facebook/Cambridge Analytica data breach and there has been a strong focus on the potential for increased regulation and reputational damage for the technology giant and other much-loved momentum stocks.

However, while we have halved the Facebook position, there is always a risk of regulation associated with companies holding monopolistic positions and we still see potential for strong revenue growth in the long term and retain a smaller position.

Other notable news over the three months included the US 10-year Treasury yield breaking through the 3% threshold for the first time since 2014. This, combined with a tick up in inflation (due to commodity prices) and signs of the economy rolling over has capped the market. Global equities are down year to date in sterling terms.

What’s changed in the portfolio?

We have increased our emphasis on quality companies in the portfolio, This has included topping up ADP, a provider of human-resources management software and services, which was added to the portfolio in 2017, a firm which aims to benefit from the trend for outsourcing payroll and other services.

We also added to Praxair, an industrial gases manufacturer held in the portfolio for a number of years. It has been out of favour with many investors while the global economy has been sluggish. However, there are increasingly positive signs that demand is increasing and Praxair will be rewarded for its ongoing investment in its business.

At the same time, we have reduced the portfolio’s exposure to companies in the more cyclical industries, selling Ashtead – an industrial-equipment rental firm – and mining business BHP Billiton.

What currently interests you?

Strong first-quarter earnings are not being well received by the market. Investors have become more cautious, due to factors such as the rising 10-year treasury yield, which means it could be a tricky summer ahead for markets.

In my view, inflation is still under control but needs to be watched. The worst outcome would be ‘stagflation’, where global economic growth remains dull and prices rise, reducing demand and growth further.

However, I don’t think we’re looking at any major market collapse. If we do see market weakness, we will be looking for opportunities to buy good quality businesses that may have been oversold.